Tuesday, October 11, 2011

EOD Analysis for 11th October and Outlook for 12th October 2011

Following global cues, Nifty opened with a significant gap-up but yet again, the OI in Nifty futures was hovering around the 24 million mark from morning to the middle session.  The gap up was quickly filled with downward price action and VIX that was at sub-30 levels in the morning has marginally spooked up again.

As mentioned earlier, critical levels remain unchanged

These are the critical support and resistance levels.

Bulls did manage to take Nifty above 5032 but the volumes and news from Europe did not support sustaining this level. The bull story will only get bolstered by a close above 5032 that opens Nifty for a retest of 5092-5125 levels and a close above 5092 will open Nifty for a retest of 5150-5177 levels and a close in the 5150-5177 region will give at least 144 points in the same direction

For the bears, 4880 is a crucial level and if they get a close below 4880, they might try to take it all the way down to fill in as much of the gap as possible for Friday's upmove. To the extent 4800-4840 levels hold, Nifty will get some bounce via short covering. Still no signal of fresh longs in the system as the OI is pretty low for Nifty futures. Interest rate sensitives and banks continue to remain under pressure and are vulnerable to a fall any time. The real estate pack seems to have got exhausted a bit and may see one more round of profit booking considering that they bounced back pretty smartly.

PS: A couple of live examples of charts tend to drive news and not the other way around. Despite so much negative action with regards to Maruti, it staged a modest comeback today aided by short-covering

DAX had a countertrend rally towards 5700 [in fact it went to 5800] and is now going through routine profit booking. Even without any piece of news on the recapitalization by Merkel and a gloomy outlook for Euro-zone by Trichet [first time he has openly admitted it and that too when he is days away from vacating his chair

That is the power of charts and while they do stump us occassionally [frankly, I was amazed to see bulls take Nifty beyond 4950 and DAX above 5700] but there was no need for any news. Even without these announcements, hot money would have ensured the same price action with some throwover or throwunder.

As mentioned yesterday, gaps do tend to get filled especially because most of the gaps that we are seeing on Nifty right now are 'exhaustion gaps' from either bulls or bears [bull and bear trap classics] - so if we are in for a Diwali bumper and 4663-4693-4720 holds for Nifty on downside, that last pending gap towards 5328 may get filled with a close above 5150 levels; and the downward gap from 4750 to 4880 is bound to be filled within 22nd November '11.

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